While vouching how will the auditor ensure himself that all credit sales transactions have been recorded by the entity?

 Options:

a) Examining cut-off points b) Matching entries in the sales book against renumbered sales invoices and goods outward notes c) Counting the number of invoices and matching the number with entries on sales book d) Both (a) and (b)

The Correct Answer Is:

d) Both (a) and (b)

Correct Answer Explanation: d) Both (a) and (b)

When an auditor aims to ensure that all credit sales transactions have been accurately recorded by an entity, they deploy specific procedures to validate the completeness and accuracy of the sales records.

The correct answer, (d) Both (a) and (b), is grounded in a multi-faceted approach that involves examining cut-off points and matching entries in the sales book against renumbered sales invoices and goods outward notes.

a) Examining cut-off points

Examining cut-off points involves assessing the timing of when transactions are recorded to ensure that all sales made during the reporting period are appropriately included.

By examining the cut-off points, an auditor can confirm that transactions occurring at the end of the accounting period are correctly recorded in the respective period and not delayed or recorded prematurely.

This examination helps in verifying that all sales, particularly those made near the end of the reporting period, are accounted for in the correct period.

b) Matching entries in the sales book against renumbered sales invoices and goods outward notes

Matching entries in the sales book against renumbered sales invoices and goods outward notes is another crucial step.

The auditor cross-references the sales book entries with the actual invoices and goods outward notes, ensuring consistency, accuracy, and completeness of recorded sales. Renumbering these documents helps prevent the omission or duplication of sales entries.

It allows the auditor to confirm that each sale documented in the sales book corresponds to an actual transaction supported by an invoice and goods outward note. Any discrepancies or anomalies between these records would prompt further investigation by the auditor.

Now, let’s delve into why the other options are not entirely correct:

c) Counting the number of invoices and matching the number with entries on sales book

Counting the number of invoices and matching the number with entries on the sales book might seem like a plausible method to verify completeness.

However, relying solely on counting the number of invoices doesn’t guarantee accuracy or authentication of the recorded transactions. It overlooks potential discrepancies between the recorded sales in the book and the actual content of the invoices. This method might miss instances where invoices are manipulated or omitted.

In contrast, the combination of examining cut-off points and matching entries in the sales book against renumbered invoices and goods outward notes (option d) provides a more comprehensive and robust approach to validate the accuracy and completeness of credit sales transactions.

It addresses the timing of recording transactions and cross-verifies the recorded sales with supporting documentation, minimizing the risk of overlooking or misrepresenting sales entries.

In summary, the auditor’s objective is to ensure that all credit sales transactions are accurately recorded in the entity’s books. Achieving this involves a meticulous process that considers timing (cut-off points) and cross-verification (matching entries with supporting documents) to validate the completeness and accuracy of sales records.

This approach minimizes the risk of errors or intentional misreporting, ultimately enhancing the reliability of financial statements.

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